The Declining Relevance of a College Degree

0:00 to college or not to college is a debate worthy opinions often outpace the data.

0:04 On one side, there are people who see it as the only way to get a stable,

0:08 respectable, and lucrative job that will be

0:10 the proverbial golden ticket to the middle class.

0:12 And on the other side,

0:13 there are the people who claim that a college education is

0:16 for schmugs who will bury themselves in debt only to get a job

0:19 that barely pays better than a lot of the other professions

0:21 that don't require spending 3 to four years outside of the workforce.

0:24 The annoying thing about all of that is that they are both kind of right,

0:28 but in the wrong kind of way.

0:30 College graduates still outear their non-graduate peers by more than 50%.

0:33 But after accounting for the debt, the years of lost earnings,

0:36 and a healthy amount of selection bias,

0:38 the pay gap shrinks more than you might expect.

0:41 The guarantee of a middle class is also getting a lot less well guaranteed.

0:46 Middle college graduates in particular have an unemployment

0:49 rate just as high as their non-graduate peers.

0:51 This is all to say nothing of our rampant

0:54 undermployment because let's be honest with ourselves,

0:56 the stereotype of a barista with a master's degree didn't come from nowhere.

1:00 To make matters worse, on either side of this debate,

1:03 there is a lot of money to be made

1:04 either by institutions that need to keep their emissions consistent

1:06 or people trying to sell you the secret to wealth

1:09 without higher education through their Forex day trading system.

1:11 Either one is an effective message to a lot of people who are often very young,

1:15 very impressionable, and not very well equipped to be dealing

1:19 with potentially hundreds of thousands of dollars worth of debt.

1:22 Oh, and well, if all of this wasn't confusing enough already,

1:25 there is now a multi-trillion dollar industry that hinges

1:28 on being able to make these graduates completely unemployable.

1:31 One of the things that scares me is becoming a parent.

1:35 I just don't see how that's possible with having

1:37 a student loan debt hanging over my head.

1:38 How much debt do you currently have total?

1:41 Probably like 80,000 in student loans.

1:43 I feel like maybe like 40,000.

1:44 How many applications have you sent out?

1:47 10 to 20.

1:48 What's the response been like?

1:49 I haven't had enough experience.

1:51 Can someone explain to me how I have four degrees and still can't get a job?

1:55 I have 900 plus applications and I have received nothing.

1:59 What do you think about AI replacing jobs though?

2:02 Cuz that's uh that's a big concern.

2:04 Even will certainly be very disruptive because jobs will be different.

2:06 The change caused by AI is going to be pretty radical.

2:09 So there you know a lot of jobs that are that currently exist.

2:13 The cost of a college degree has increased significantly but just

2:17 by the numbers it is still a good investment with a typical

2:20 college graduate earning $650,000 more than a typical high school graduate

2:24 over the course of their career according to a Pew Research study.

2:28 But just because something is a good investment

2:30 doesn't mean that there aren't better investments available.

2:32 So, it's time to learn how money works to find out how good

2:36 a college degree is according

2:38 to the numbers and explore some alternative investments.

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3:51 Is college a good investment?

3:53 Well, by the numbers, if you think you would be a typical student, then no.

3:57 The $650,000 in additional income you would earn over a 40-year career

4:03 from an initial investment of $150,000 works

4:06 out to be an annualized ROI of 3.5%.

4:09 Which, as far as investments go,

4:11 is[ __] Investing that $150,000 into a broad market equities portfolio

4:16 would generate returns of $9.3 million over the same 40-year time horizon,

4:22 assuming historic market returns.

4:23 You might think it's unfair to assume historic market returns.

4:27 But by that logic, it would also be unfair

4:29 to assume the historic value of a college degree.

4:31 So, we have to work with the figures we got.

4:34 Using this strategy,

4:35 a four-year college degree would need to cost less than $10,000

4:38 for the $650,000 in additional income to match market expected returns.

4:44 Cheap colleges do exist, and going to a local school can save you a lot of money

4:48 on accommodations if you are fortunate enough

4:50 to be able to stay with your parents.

4:52 $10,000 is a stretch,

4:53 but with scholarships and assistance programs, it is possible.

4:57 However, passive investing has some other advantages besides the mad gains.

5:01 Setting aside and forgetting a stock portfolio until

5:04 you retire literally requires you to do nothing.

5:06 If you drop out of your college degree,

5:09 decide that you hate the career you chose,

5:11 or develop an injury or illness that makes you unable to work,

5:14 then your college degree effectively becomes useless.

5:16 An investment portfolio, on the other hand,

5:19 doesn't care what you do with your life.

5:21 What?

5:22 What?

5:22 As long as it stays in the market, it should be making you money.

5:27 For all of you cancelling your college applications right now,

5:30 consider this as well.

5:31 The earnings gap only factors in the price of attending college.

5:34 It doesn't factor in the four years of earnings

5:37 you would get by working a job instead of studying.

5:39 Come on, dude.

5:40 Today's typical high school graduate, aged 18 to 24 with no further education,

5:45 is paid an average of $23,000 per year working full-time,

5:49 according to Pew Research.

5:51 That's close to $100,000 in foregone earnings in the four years of college,

5:55 assuming the student does not have a part-time job.

5:58 If they did, the earnings gap would still be there.

6:00 It just wouldn't be as wide.

6:02 But that's not even the best part.

6:03 A lot of these statistics are based off of samples

6:06 from the population of high school

6:07 graduates and the population of college graduates.

6:09 As with figures derived from a sample population,

6:12 they are prone to selection bias.

6:13 People that meet the requirements and make the decision to go

6:16 to college are on average more likely to have ambitions

6:19 of high earning careers than those who do not go

6:22 to college or do not meet the requirements to do so.

6:24 Now certainly there are plenty of college

6:26 students who are not very ambitious at all

6:29 and there are people who don't even graduate

6:31 high school who hustle like crazy to make money.

6:33 But on average the college crowd are going

6:35 to be more money motivated than the dropouts.

6:38 That means if you are a motivated individual that's going

6:40 to pick a non-ol career path based off earnings potential,

6:44 then you are likely to close the $650,000

6:47 earnings gap between high school and college graduates significantly.

6:50 I don't know, man.

6:51 That sounds like a lot of work.

6:53 So, why the aren't people doing this?

6:55 If you hadn't guessed by now,

6:57 there are some problems with just letting your college

7:00 tuition fund ride in the stock market for 40 years.

7:03 Sometimes gross returns are not the only thing an investor needs to consider.

7:07 A college degree does offer some advantages.

7:09 In addition to its ability to qualify you for higher paying jobs,

7:13 it can also qualify you to more comfortable jobs.

7:15 Going to college is like a safety net.

7:18 The TV show Dirty Jobs ran for nine seasons between 2003 and 2012.

7:22 And in its 179 episodes, a lot of the featured jobs earned very good money,

7:28 and very few of them required a college degree.

7:30 If you want to make money without a college degree,

7:33 there are options available to you.

7:34 Especially if you are willing to work your ass off outdoors in smelly, hot,

7:38 dangerous conditions doing hard labor that will wreck your body before

7:42 your investment portfolio has had time to make you a millionaire.

7:45 Or you could work equally hard in a temperature-controlled

7:47 office pushing paper around a desk all day.

7:50 You might think it's hard to put

7:52 a nominal value on such a subjective difference,

7:54 unless you went and got yourself a finance degree,

7:56 in which case you will be qualified to assign

7:58 your own multiple and conduct your own calculations accordingly.

8:01 Being the richest person in the graveyard is pointless, and to many,

8:05 a college degree is just as much

8:07 an investment in being able to dedicate their lives

8:09 to work they enjoy as much as it is an investment to make more money.

8:13 Lifestyle during your working career must also

8:15 be considered purely based on finances as well.

8:18 An investment portfolio returning 10% annualized returns makes money like this.

8:22 Almost nothing for the first three decades and then

8:25 huge wealth being generated in the last 10 years.

8:27 Either of these return patterns are fine.

8:29 If all you want to do in life is save for retirement.

8:32 But if you want to travel, buy a house, raise a family, or generally live life,

8:36 then you are going to need a more

8:38 consistent stream of income like a higher monthly paycheck.

8:41 The pure investment strategy also wouldn't work for everybody.

8:44 The stock market only provides returns when smart,

8:47 hardworking people innovate to make the companies they work for more profitable.

8:51 Innovation can come from anywhere,

8:52 but it does largely come from people who are well educated.

8:56 If everybody just frontloaded their life savings into the market

8:59 and kicked back for the next 40 years,

9:01 then there would be nobody left to generate any returns.

9:03 Still, that doesn't matter for you.

9:05 As long as enough suckers still buy into the college career dream,

9:09 you could still make the plan work for yourself.

9:12 All right, then.

9:13 Let's do it.

9:14 Now, you just need to find $150,000.

9:16 Holy crap.

9:17 Raising this money to go to college is easy.

9:21 The federal government and a long list of private companies give out

9:24 loans to students every year to fund their tuition and expenses while studying.

9:27 Because student loans are extremely difficult to discharge through bankruptcy,

9:31 the organizations lending the money feel comfortable giving

9:34 tens of thousands of dollars to an 18-year-old kid.

9:37 The federal government unfortunately does not give out six-f figureure

9:40 loans to people that want to frontload their retirement savings.

9:43 So automatically that cuts out the 68% of students that were

9:46 going to make this payment by taking on a loan.

9:49 Another 7% of students get through college thanks

9:51 to scholarships that eliminate the cost of tuition.

9:54 Unfortunately, scholarship money cannot be yoloed into the stock market.

9:58 The remaining 25% would have to convince their parents that their investment

10:02 strategy was a better use of their college fund than,

10:05 you know, actually going to college.

10:06 Probably a tough sell to mom and dad who

10:09 have been saving that money away for 18 years.

10:11 Also, if you do decide to go to college,

10:13 you might learn enough about statistics to recognize

10:16 the mistake I made a few minutes ago.

10:18 Okay.

10:19 Okay.

10:19 You got me.

10:20 I assume that because you were watching this video on how

10:22 to extract the most money possible out of your working

10:25 and investing career that you were strongly motivated by how much

10:28 money you could make by going or not going to college.

10:31 That assumption wasn't a mistake.

10:33 But what was is what I said about selection bias.

10:36 If you have a heavily money motivated individual without a college degree,

10:39 you shouldn't be compared to the average person with a college degree.

10:43 You should be compared to someone with a college

10:45 degree who is also heavily money motivated.

10:47 The top 10% of high school

10:50 graduates easily outearns the average college graduate.

10:52 But the gap between the top 10% from both of these categories is even

10:57 wider than the $650,000 Pew Research figure

10:59 that we have been basing this study around.

11:01 There are lots of college degrees

11:03 that lead to jobs with low earnings potentials.

11:05 And a lot of people don't mind that because they just want

11:08 to build a career around something like teaching or the performing arts.

11:11 Is college a good investment?

11:12 It can be.

11:13 And it's potentially the best investment available to a lot of young people.

11:17 Not because it makes them better and more valuable workers,

11:20 but because it gives them access to incredible leverage

11:23 through big loans without the possibility of a margin call.

11:26 Obviously, this video is not to be taken too seriously.

11:29 But I actually think this can be a great

11:31 way for young students to think about their career options.

11:34 If college is an investment, then you should treat it like an investment.

11:38 If you were investing $1,000 in a stock on Robin Hood,

11:41 then you would look at the data,

11:42 assess the industry that the company operates in.

11:44 What does the future of the industry look like?

11:47 How expensive is the stock?

11:48 What are its earnings?

11:49 Is the stock overhyped?

11:50 Will the company still be around in 20 years time?

11:53 Or will it be made redundant by new technology?

11:55 Is there a cheaper way to get exposure to the same industry?

11:58 People put a lot of time and effort into making

12:01 decisions when they see their money is on the line.

12:03 But pick a college degree based on what school

12:05 has the prettiest grounds or the best football team.

12:08 College is a five or six figure investment,

12:10 and it should be treated as seriously as any other investment of the same size.

12:15 And a big part of making good investments is assessing the alternatives.

12:18 But is the investment worth it when a lot of college

12:21 graduates don't end up in a field that requires all that studying?

12:24 More than half of the Americans that do have a college

12:27 degree are now working in jobs that don't require one.

12:30 And the stigma around not working a white collar job has almost been

12:34 reversed as skilled treats people have started

12:36 to significantly outear their office dwelling peers.

12:39 The decision to commit to an expensive degree

12:41 is one that less people are making every year.

12:43 And this is either a really good thing or a really bad thing.

12:47 A college degree used to all but guarantee

12:49 an upper middle class lifestyle in America.

12:51 And that's because they were extremely rare.

12:54 According to data collected by the US Census Bureau and compiled by Statista,

12:58 only 7.7% of Americans aged over 25 had a college degree in 1960.

13:03 In 2022, 37% of the population had one.

13:07 This was almost a 500% increase in the number

13:10 of college graduates that companies could pick from.

13:13 Now, if you do have a college degree

13:15 and think that you are still in the elite minority,

13:17 well, let me knock you off that high horse.

13:20 According to the National Bureau of Economic Research,

13:22 fewer than 2/3 of Americans are part of the workforce.

13:25 So, a college degree is nothing special anymore.

13:27 If you are a worker that wants bargaining power in their career,

13:31 you really only have two options.

13:33 Your first option is to pursue an additional degree

13:35 that once again makes you a rare and valuable hire.

13:38 But even that is getting harder now.

13:40 As of 2019, 13.1% of Americans have a master's degree or higher qualifications.

13:45 That means nearly twice as many people have

13:48 a master's degree today than had any degree in 1960.

13:51 Degrees became too common in the workplace.

13:54 So, people responded by getting even more degrees.

13:56 According to the workplace analytics firm Paycale,

13:59 the average salary for someone with a master's degree is $83,000 a year,

14:03 which is about a $20,000 increase over

14:06 the national average for a full-time employee.

14:08 According to the Education Data Initiative,

14:10 the average cost of a master's degree is almost $60,000.

14:14 The degree should pay for itself over a long career,

14:18 but the numbers alone don't tell the full story.

14:20 If you have the skills and the motivation to get an advanced college degree,

14:24 you are probably earning more than the average full-time American anyway,

14:27 so the earnings gap is smaller than you might expect.

14:30 If the thing you want most from a job is a high income and career stability,

14:33 there are better options than diving into the arms race of qualifications.

14:37 The collapsing relevance of a college degree is either going to be

14:40 a really good thing or a really bad thing for your career.

14:44 And since for some reason people think that we

14:46 are too negative here at how money works,

14:48 we are going to start with the good news first.

14:51 College degrees are expensive.

14:52 And most students are paying for their remission

14:54 with loans that will take decades to pay off.

14:57 Student loans also negatively affect other financial objectives like

15:00 qualifying for a home loan or starting a business.

15:03 The trade-off of a college degree is that eventually

15:06 senior white collar jobs pay more than senior bluecollar jobs.

15:10 But that doesn't really matter anymore.

15:12 College has become so expensive that the financial head

15:14 start from not attending is getting larger and larger.

15:17 And with the flood of college graduates fighting for jobs,

15:19 there is no guarantee that you will ever get into one

15:22 of those senior white collar positions that make it all worthwhile.

15:25 If you get a trade instead, you can get paid for training and you can earn

15:29 an above average income as soon as you are qualified.

15:32 Trade jobs also make it much easier

15:34 for you to transition into being a business owner.

15:36 If you work as a business analyst,

15:38 you can't really start your own company unless you have

15:41 a contact network good enough to land you consistent consulting roles.

15:44 If you work as a skilled tradesman,

15:46 starting a business is still going to be hard,

15:48 but you can do it reliably much earlier in your career.

15:51 If working with your hands is not your thing,

15:53 then jobs in sales have potential earnings

15:55 caps much higher than even senior management jobs.

15:58 Even if you simply want a normal salaried office job,

16:00 the declining relevancy of a college degree could be a good thing for you.

16:04 A report by the Harvard Business Review

16:06 found that as university qualifications became more common,

16:09 recruiters and employers increasingly demanded them,

16:12 regardless of whether they were actually required for a specific job.

16:15 You'd probably want your doctor to have gone to medical school.

16:18 But does it really matter if someone managing

16:20 a marketing campaign has a bachelor of arts degree?

16:22 The good news is that more companies are dropping the rigid requirements

16:26 for a college degree because most skills are learned on the job anyway.

16:30 The same report from the Harvard Business Review found

16:32 that in the age of technical disruption and unpredictable job evolution,

16:35 most degrees that didn't teach skills that were relevant to most people's work.

16:39 The report also found that companies still requiring their workers

16:42 to have a piece of paper as a prerequisite for landing

16:44 a job were hurting themselves by artificially limiting their candidate pool

16:47 or paying a premium for work that could be done by anybody.

16:50 This was a report published by a school

16:52 famous for selling those pieces of paper.

16:54 When they talk about the workplace benefits of overlooking a college degree,

16:57 you can probably trust them.

16:59 It's true.

17:00 More than half of American workers with a college degree right

17:03 now are not working in roles that require a degree on paper.

17:06 But for every person working a six-f figureure coding role

17:10 at a forward-thinking tech startup that dropped the college degree requirement,

17:13 there are hundreds of workers with a 4-year degree under their belt

17:16 who are waiting tables because they couldn't find work anywhere else.

17:19 Sure, they are both technically working in roles that don't require a degree,

17:24 but the nice sounding headlines are covering over something that could

17:26 cost you hundreds of thousands of dollars over your career.

17:29 You are paid based on how much you make

17:31 for your company and how hard you are to replace.

17:33 If you don't make a lot of money for the company and anybody could do your job,

17:37 then you aren't going to earn much money.

17:39 But if you make the company a lot of money and you

17:42 have skills and experience that nobody else in the world has,

17:44 your earnings are almost uncapped.

17:46 Desk managers at hedge funds and worldleading engineers at tech companies

17:50 can make millions of dollars a year for exactly this reason.

17:53 The trades have enjoyed high incomes because it has

17:56 been extremely hard to find people to do the work.

17:58 Blue collar work has a reputation

18:00 of being inferior to white collar professional jobs

18:02 and young Americans also reported a fear

18:05 that technical roles on factory floors could be automated.

18:08 But that is starting to change.

18:10 People are seeing how lucrative these roles are and they are also witnessing

18:13 that AI is replacing white collar work much faster than blue collar work.

18:17 AI systems can now construct a three-statement

18:19 financial model and audit financial statements,

18:21 but they can't tile a floor or install an HVAC system.

18:25 There is still a shortage of skilled trades people,

18:27 but if more people see the benefits of this kind of work and start doing it,

18:31 then it will make them easier to replace and easier to pay less.

18:35 Even in white collar fields, the declining value of a college degree is

18:38 going to cause three big problems for most people.

18:41 The first problem is that even if companies claim

18:43 they are dropping their hard requirements for a college degree,

18:46 they are still going to pick the candidate who does have a college

18:49 degree in most cases over a similar candidate with no formal qualifications.

18:53 A lot of companies have made big announcements

18:55 about how they don't care about a college degree as a way to get some free

18:59 publicity from news outlets about how forwardthinking they were.

19:02 There was a market increase in companies making announcements like this during

19:05 the period where businesses were finding it hard to hire anybody.

19:09 But these big announcements were not exactly what you would call honest.

19:12 A study from the workforce research firm the Burning Glass

19:16 Institute and the Harvard Business Review scraped data from online job

19:20 postings from 2014 to 2023 and found a 400% increase

19:23 in the number of roles from which employers removed degree requirements.

19:27 However, the study also found that companies

19:29 didn't really change anything behind the scenes,

19:32 and not even one in 700 of the analyzed roles over

19:35 2022 was filled by a skills-based candidate over a college graduate.

19:38 The real problem that the report alluded to was

19:41 that if people without a college degree were

19:43 being hired into roles based on their skills

19:46 for a job that typically requires a college degree,

19:49 how did they get these skills in the first place?

19:52 And that's the second big problem

19:54 that the declining relevance of a college degree causes.

19:57 Colleges are not perfect,

19:58 but they do display to a hiring manager a certain level of commitment

20:02 and ability to pursue an objective that anybody has the opportunity to complete.

20:06 They are far from a meritocracy.

20:07 And the problems with college admissions need a whole separate video.

20:11 But if recruiters and hiring managers stop focusing on education,

20:14 they are going to substitute it

20:16 for things like existing experience and connections.

20:18 If you want to get a job based on your abilities,

20:20 you are going to need to demonstrate those abilities.

20:22 And companies are going to be

20:24 happy recommending pathways like unpaid internships.

20:27 Not everyone has the financial stability to work for free for up to 6 months

20:30 at a time just to get experience for a job that may not hire them anyway.

20:35 A report by Lending Tree found that 47%

20:37 of unpaid interns took on debt to make ends meet.

20:39 And those who didn't either had to work a second job

20:42 or rely on their family to support them while working without pay.

20:45 The collapsing value of a college degree

20:47 is really only increasing the value of nepotism.

20:50 Demonstrating the ability to do a job is hard

20:53 if you aren't given the opportunity to do that job,

20:55 which is where family support or in some cases just getting a job

20:58 at a family company put some young workers even further ahead of their peers.

21:02 Children of wealthy families have always had this career advantage,

21:05 but ignoring college degrees kicks out the ladder from young

21:08 people who don't have any other way of getting ahead.

21:10 It's hard but possible for anybody to work their way into a good college.

21:15 It's not possible for everyone to get

21:17 early career experience at their parents' company.

21:20 A multi-deade study conducted by Stacy Dale

21:22 and Alan Krueger found that the benefit

21:23 of attending an elite college for the average student was effectively zero.

21:27 Students with the intelligence, credentials,

21:29 and family backgrounds to get into these institutions

21:31 would have done well no matter what.

21:33 The benefits of attending even Ivy League

21:35 schools is just the result of selection bias.

21:38 These schools don't make their students successful.

21:40 They just keep enrollment selective to students who are already successful

21:44 or at least the children of parents who can practically guarantee their success.

21:48 Legacy emissions and the cost to attend

21:50 these schools means that families earning in the top 10% of incomes

21:53 are overwhelmingly represented in the student populations.

21:56 The one exception that the study found

21:58 were underprivileged kids that could use their college

22:00 degree as a leg up into roles

22:02 that wouldn't have otherwise been available to them.

22:04 To them, a degree of any kind would have made a big

22:07 difference to how much they were likely to earn over their career.

22:10 Which means if companies stopped caring about degrees,

22:12 it would be the people who need it

22:14 the most who will be pushed the furthest behind.

22:17 The third problem is much more simple,

22:19 and it's the reason why more companies have

22:21 been so willing to hire people without a degree.

22:23 It gives you less negotiating power.

22:25 Companies don't reward employee experience anymore.

22:28 Internal promotions are rare, layoffs are frequent,

22:31 and payraises are barely keeping up with inflation if you're lucky.

22:35 More workers have figured out that the best way to get the most

22:37 out of their career is to job

22:39 hop and consistently look for better opportunities.

22:41 If you are a morally ownerous company manager,

22:44 then hiring an employee without a degree for a role

22:46 that typically requires one is a great way to ensure that they

22:49 are going to find it more difficult to get a better

22:51 job at a different company that has a degree as a prerequisite.

22:55 A degree is still a really expensive investment into yourself.

22:58 And if all you care about that investment

23:00 doing is maximizing your income over your working career,

23:02 then you need to think very carefully about minimizing how much you

23:05 put into that investment and how it's going to pay off for itself.

23:09 Especially since the shape of work is changing just

23:11 as quickly as the value of a college degree.

23:13 And we're not exactly being great at preparing

23:16 people for the realities of the current labor market.

23:18 But that isn't stopping people from just blaming the workers.

23:21 If a hospital is hiring a doctor,

23:24 but the only person in town looking for a job has a degree in computer science,

23:27 then obviously that role is not going to be filled regardless

23:30 of how much time and effort the applicant has put into their education.

23:33 The argument that you would have seen is

23:35 that the same problem is playing out everywhere across the world.

23:38 Which is why even if companies claim to be desperate to hire people,

23:42 you might struggle to find a job.

23:44 The whole argument conveniently shifts the blame

23:46 of any labor market problems onto the workers

23:48 because they are the ones that haven't trained

23:50 the right skills or developed the right experience.

23:52 The first problem with this idea, though,

23:55 is how the problem of the skills gap quietly slips away during the good times.

23:59 Research published by economists from Harvard, Northern University,

24:02 and the Federal Reserve found a striking relationship between unemployment

24:06 and the experience that employers look for in their candidates.

24:09 The team collected data on over 36 million job postings over 3 years.

24:13 And what they found was that the skills and experience

24:16 required was almost directly proportional to the unemployment rate.

24:19 In plain English, what this meant was that when

24:21 there were lots of people looking for a job,

24:23 all of a sudden the skills requirement for roles became a lot higher.

24:26 And this is when people will start complaining about a skills gap.

24:30 But when unemployment is lower and there

24:32 aren't that many people applying for jobs,

24:34 suddenly the skills gap isn't such a big problem

24:36 and companies are happy to hire whoever they can get.

24:39 Now, as long as they aren't discriminating based on protected classes,

24:42 companies can basically hire whoever they want

24:44 and ask for whatever skills they can.

24:46 If unemployment is high and they can be greeted with their job requirements,

24:50 that's just business.

24:51 But the problem is the myth of the skills

24:54 gap is used to justify a lot of bad stuff.

24:57 The first is simply lower wages.

24:59 If companies post a position with high skill requirements and they

25:02 don't get any applicants that meet their unreasonably high bar,

25:05 they can go back to the best applicant

25:07 with a lower salary and benefit offer than advertised,

25:09 pointing out the gaps in their skills as a reason for the lower offer.

25:13 This is just basic salary negotiation tactics.

25:16 But the myth of the skills gap makes

25:18 it easier for companies to get away with this.

25:21 A report by MIT found that most jobs advertised in America asked

25:24 for skills like programming that were actually not required to perform the job.

25:28 They look specifically at IT help desk technicians that deal with computers.

25:32 So most companies ask for programming skills.

25:34 The thing is though,

25:36 most IT help desk techs don't actually use programming for anything.

25:39 But a lot of companies just assume that computers

25:42 equal code and so make it a job requirement.

25:45 The report actually found that programming was just as useful

25:48 in manufacturing plants as it was in IT help desk work.

25:51 But factory machine operators were far more likely

25:53 to get on the job training on how to program their machines than IT workers who

25:57 were just assumed to know how to code.

25:59 But lower wages are far from the worst thing that the myth

26:02 of the skills gap has been used to push for.

26:04 It's also been an incredible tool for lobbying on migration policy,

26:07 education funding, and workplace protections.

26:09 These are worth looking at one by one because you are

26:13 probably going to start hearing a lot of familiar sound bites.

26:15 If there was actually a supply of good paying jobs available

26:18 to people that were going unfilled because of the skills gap,

26:21 then the traditional market assumption would be that people would retrain

26:24 to fill those roles to increase their income and job security.

26:27 But that isn't happening because there are

26:29 problems with every part of this assumption.

26:31 The first problem is that a lot of the jobs we have

26:33 a skills gap for here in America don't actually pay that well.

26:37 According to a report by the Society of Resource Management,

26:39 the hardest roles to fill currently include jobs like nursing,

26:43 teaching, the trades, and social service work,

26:45 most jobs in these roles do not pay enough

26:47 to support a comfortable life in a major city,

26:50 especially for entry-level employees into the roles.

26:53 The trades can be great, but apprentice tradesmen are not going to earn

26:57 much until they are fully qualified, and even then,

26:59 they need to work significant overtime or own their own business

27:02 to make a comfortable salary in most parts of the country.

27:05 Even still, they are going to be better off than teachers and nurses

27:08 who not only need a college degree where they won't be paid anything,

27:11 they also need on the job training before they are earning anything at all.

27:14 That's on top of reports about extreme job stress,

27:17 brutal work schedules, and the general lack of respect these roles receive.

27:21 Putting your career on hold,

27:22 spending tens of thousands of dollars on a college degree,

27:25 and dealing with difficult patients or often dangerous patients

27:28 or children is not that enticing to Americans who

27:31 would consider a career switch because the income

27:33 for these rules hasn't risen in line with the demand gap.

27:36 There is not a skill shortage.

27:38 There is just a shortage of people who want to do difficult jobs for bad pay.

27:42 People in these roles who already have the skills

27:45 to perform the job at a high level are leaving because

27:48 it's just not worth making the sacrifices necessary when there

27:51 are easier jobs that pay just as much or more.

27:53 A counter example to this trend was the rush to train computer science.

27:57 The tech industry in the 2000s was expanding rapidly and we

28:01 didn't have enough coders to perform

28:03 roles that actually needed programming skills.

28:05 The allure of high-paying, respected jobs with a good work life balance

28:08 meant a lot of very smart people moved

28:10 into that career path to fill the skills gap

28:13 because there was a real reward for doing so.

28:15 Now there are actually too many qualified programmers.

28:18 And as the tech industry has cooled down,

28:20 hundreds of thousands of people have been laid off.

28:23 Just 5 years ago though,

28:24 they would have been told that there isn't enough programmers

28:27 and companies are hiring whoever they can as fast as they can.

28:30 So, the assumption that empty jobs are just waiting to be filled and the only

28:33 thing standing in the way is the skills gap can be a bit dangerous.

28:36 But the final piece of the puzzle is how profitable fixing this myth can be.

28:41 Politicians can win some easy political points

28:43 by talking about retraining programs and companies

28:45 can push the responsibility of staff training

28:47 onto their workers or those government programs.

28:50 The market research firm Allied Market Research

28:52 values the corporate training market at over

28:55 $361 billion with it projected to grow to over $800 billion by 2035.

29:00 That's a major industry just by itself and it

29:04 relies heavily on people believing that they are

29:07 just one qualification away from landing a job

29:09 that is just desperate to find the right worker.

29:11 This industry is separate from traditional colleges and trade schools,

29:15 but you already know what a mess that whole thing is.

29:17 The skills gap has been a major lobbying tool

29:20 by companies to push for this kind of training.

29:23 Seammens, an industrial equipment manufacturer,

29:24 paid for an article in the Atlantic talking directly to policymakers

29:28 that the apprenticeships were the secret to closing the skills gap.

29:31 Apprenticeships are actually great.

29:33 But the reason that Seammens was paying to publish

29:35 this article is that it would give them a new

29:37 pool of skilled workers to pick from, not because

29:40 they wanted to help out with labor force policies.

29:42 And this is where you get to the most controversial part of the skills gap.

29:46 It's used to justify immigration.

29:47 Now, this is obviously a heated topic that everybody

29:50 has their own set of opinions on, but it

29:53 is possible to advocate for more careful and deliberate

29:56 immigration policies without going full they took our jobs.

29:58 The skills gap has been used to push for a lot of skilled migration,

30:02 which has arguably gone too far in America,

30:05 but has been even more obvious in places like Canada,

30:07 the UK, Australia, Germany, and New Zealand.

30:10 The reason companies like this is because it lets

30:13 them fill roles without putting upward pressure on salaries.

30:15 And more people means more customers to sell products to.

30:18 But with that downward pressure on salaries,

30:21 the American dream is starting to look like something

30:23 that very few people will ever be able to achieve.

30:26 How much money would you need to buy the American dream?

30:29 Not how much would you need to make

30:31 in order to afford the repayments on the American dream.

30:33 How much would you need to buy the house,

30:36 the two cars, the family, and a basic vacation every year?

30:39 I know it's not going to blow your mind to find out

30:42 that these supposedly vital ingredients to a good

30:45 life have gotten kind of expensive, but it has reached a tipping point.

30:49 The American dream is not dead so much as it's an extreme luxury in many

30:53 parts of the country that can now cost as much as $10 million to afford.

30:57 That's more than most of us will ever earn in our lifetimes before taxes,

31:01 interest payments, and basic essentials like food.

31:04 Sorry to be the bearer of bad news,

31:06 but holding on to the traditional financial wisdom of what you ought

31:09 to have in life is now permanently out of reach for most people.

31:12 And as more Americans realize this, it's fundamentally reshaping our economy.

31:16 There are three points to this video that are each obvious by themselves,

31:20 but get really interesting or worrying when you think about them all together.

31:25 The first point is that the typical American dream has

31:28 gone from an affordable lifestyle that even someone with a basic

31:31 job could afford to live to an extreme luxury

31:33 that even professional dualincome households are struggling to keep up with.

31:37 The second point is that alternative lifestyles

31:39 that used to be considered extremely luxurious

31:42 have become way more affordable than a cookie

31:44 cutter suburban home with a 30-year mortgage.

31:46 And the third point is what happens when people are

31:50 making the logical choice in picking the better life for themselves.

31:53 Now, I am calling it the American dream because

31:56 it looks better in the title of a YouTube video.

31:58 But let's be honest, the story is the same around the world,

32:01 and some places have it even worse than us.

32:04 According to data from the US Fed and the US

32:07 Census Bureau compiled in the Case Shiller Index,

32:09 the average cost of a home in the US

32:12 is now more than 7.6 times median combined household incomes.

32:16 That's now significantly higher than it was

32:17 in the leadup to the global financial crisis,

32:20 an economic meltdown enabled by housing speculation.

32:23 If you think that's bad, spare a thought for the UK,

32:27 which has lower wages but similarly priced homes, or Canadians,

32:31 who, according to data compiled by Financial Samurai,

32:34 have on average 10% less disposable income,

32:36 but live in houses 75% more expensive.

32:39 New mortgage rates are also at the highest point they have been

32:43 since the year 2000 when home prices were only four times household income.

32:47 The average person, even if they have a full-time working partner,

32:51 cannot reasonably afford to purchase an average

32:53 home at current prices with current interest rates without paying more than half

32:57 of their before tax income in interest.

32:59 That's before principal repayments on the loan and before income tax.

33:04 In reality, the average bank wouldn't even write

33:06 this mortgage because it would be financially irresponsible.

33:08 Now, housing is expensive.

33:10 You don't need me to tell you that.

33:13 But every other part of the American

33:15 dream has somehow become even more expensive.

33:17 The cost of a car, a basic college degree, insurance,

33:21 and medical care have all outpaced inflation, which is also at decade highs.

33:25 The only way to keep up with these prices is to be benefiting from them.

33:29 Every chart related to your personal finances is up and to the left.

33:34 But investment asset classes are up even more.

33:37 The average house is now earning more than the average

33:39 American in capital gains that are taxed more favorably.

33:42 And the stock market continues to break new records.

33:46 Adjusted for inflation, household incomes have increased by 20% since 2005,

33:50 but the NASDAQ is up by 340%.

33:53 People who have had time to amass assets or children

33:57 who are lucky enough to open an account with the First

33:59 National Bank of Mommy and Daddy are the only people

34:02 left who can afford the trappings of the middle class.

34:04 But this isn't yet another video telling you how financially[ __] you are.

34:09 I actually have good news, which is that more young Americans than

34:12 ever are opting out of the American dream,

34:14 as the price to buy a run-down family home can

34:17 buy them a much better lifestyle by just rejecting traditions.

34:21 So, it's time to learn how money works to find out

34:23 why it might be time to let go of the American dream.

34:26 There's one expense that has grown faster than all others.

34:29 So much that it has become a status symbol even though it's technically free,

34:33 and that's having children.

34:34 According to data from the Bureau of Labor Statistics,

34:37 the inflationadjusted cost of raising a child

34:40 has increased by more than 50% since 2000,

34:43 and some of the biggest expenses are now 250% of what they were 24 years ago.

34:48 This data was collected for husband and wife families.

34:51 So, it averages out the cost of one partner

34:53 needing to take time off work to look after children.

34:56 The reason this is happening is because less people are having children.

35:00 Young working professionals earn too much

35:02 to be eligible for most child subsidies,

35:04 but too little to really afford to raise children.

35:07 The only people that can afford to have

35:10 children are very wealthy people who don't care

35:12 about spending thousands of dollars a year

35:14 on the best preschools and paraphernalia for their child.

35:17 This means that only expensive high-end services catering to the children

35:21 of affluent families can count on a reliable stream of business.

35:24 So, the expensive options are the only ones that last in the market.

35:27 There is also a large group of people

35:29 with lower incomes that still have a lot of children.

35:32 But according to the US Census Bureau, that's partially why America has higher

35:36 rates of child poverty than elder poverty.

35:38 A study by the Tax Foundation found that married couples with children were

35:42 the fastest shrinking group in middle-income percentiles

35:45 because people couldn't afford to raise children.

35:47 The Tax Foundation is a think tank

35:49 that lobbies for lower taxes and lower government spending.

35:52 So, they might have an agenda with this report.

35:55 But the numbers don't lie.

35:56 People want to have children.

35:58 they just can't afford to because even though it was something

36:02 that people just assumed they were going to do in previous generations,

36:05 it became one of the most expensive luxuries in our modern world.

36:09 But just as everything you need to live

36:11 a normal life is becoming prohibitively expensive for normal people,

36:16 previously luxurious alternatives are becoming much cheaper.

36:19 Remote work has allowed a lot of young people to get a job or sometimes

36:23 multiple jobs at the same time and then do them from anywhere in the world.

36:27 Traveling the world full-time or living in a cheap but exotic destination

36:31 was the reserve of the jetet class just a few years ago.

36:35 But now almost anybody can do it while saving

36:37 more money than they can get in a major city.

36:40 These so-called digital nomads have gone from a small niche group

36:43 to a major component of the workforce in less than a decade.

36:46 A survey conducted by the workforce intelligence

36:49 firm MBO Partners and published by the Harvard

36:51 Business Review found that 17.3 million American

36:54 workers now describe themselves as digital nomads,

36:57 representing a 150% increase since 2019 alone.

37:01 In this survey, digital nomads could include anybody from the tech

37:05 worker sailing around the world submitting their code once a day via

37:08 Starlink to a traveling nurse living out of a van to someone

37:10 who simply moved to a more affordable city temporarily to work remotely.

37:14 In their research, the team for HBR found that the number one reason that people

37:19 were pursuing this unrooted lifestyle was because they

37:21 couldn't afford a more typical way of life.

37:24 And if they were going to be uncomfortable both physically and financially,

37:28 they would rather be uncomfortable while seeing the world.

37:31 The sacrifices that you need to make to hit

37:34 the road are much smaller than they used to be, too.

37:37 Remote jobs are still hard to land,

37:38 but they are not nearly as hard to find as they used to be.

37:42 Some people in remote work heavy fields like technology, data,

37:45 or media creation have even created forums about doing multiple

37:49 full-time jobs at the same time to make several full-time incomes.

37:52 Living in a different country has also become a lot easier.

37:56 Some popular centers with budgetconscious digital nomads are safer, cleaner,

38:00 and have better amenities than American cities that are unaffordable.

38:04 Some countries are so welcoming to young

38:06 remote workers that they have even started offering

38:08 digital nomad visas to simplify the legal

38:10 and tax considerations of working in another country.

38:13 Even if you feel lonely and want to see your friends and family frequently,

38:17 saving $2,000 a month on rent buys

38:19 a lot of plane tickets on budget carriers since

38:22 airline tickets are another thing that have noticeably

38:24 become cheaper while everything else is getting more expensive.

38:27 There are still hardships with living abroad,

38:30 but they are getting easier every day.

38:33 All while the American dream is getting harder.

38:35 Now, not everybody priced out of living

38:37 a normal life is pursuing such an adventurous alternative.

38:40 There are some people that have been able to make the best of a bad situation.

38:45 But there are far more young people across the world who are just giving up.

38:49 In a time when the average American can't afford an unexpected $1,000 expense,

38:55 luxury good companies selling $5,000 handbags

38:57 or $10,000 watches are making record profits.

39:00 This is because of a phenomenon known as doom spending.

39:04 If you have worked hard in school, landed a good job,

39:07 worked for 10 years, and are no closer to owning a home of your own,

39:10 it's reasonable to want to see some kind of reward for all of your hard work.

39:14 If you can't afford a sensible purchase to treat yourself,

39:17 you could at least buy something that makes it look

39:19 like you have some kind of financial stability in your life.

39:22 It's not logical, but these companies don't make billions

39:25 of dollars selling $2,000 shoes by appealing to logic.

39:28 Doom spending is all a part of a bigger trend of people just giving up.

39:33 In countries like China, where competition for housing and other essentials

39:37 is even worse than here in America, there is a lying down movement.

39:40 Young people are not going to work or school

39:43 and are lying flat all day playing video games and relaxing.

39:46 The trend was such a threat to the country

39:49 that the government banned the term on all social media.

39:51 And that might be the most important part of the dying American dream.

39:55 What happens when everybody gives up on it?

39:58 The American dream only works if most people

40:00 believe in it to keep the system going.

40:03 Maybe the boomers had it coming as they voted for policies that benefited them

40:06 above their children and now their children

40:08 don't want to keep their system going.

40:10 But I am sorry to tell you that most boomers

40:12 are going to be dead before this really becomes a problem.

40:16 It's hard for Americans to stop paying tax if

40:18 they go and work in a different country because we

40:20 are one of the only countries in the world

40:23 that still taxes its citizens even if they live abroad.

40:26 But for other countries,

40:27 losing workers who are moving elsewhere for a better life has already

40:30 become a major drain on the systems that are funding their aging populations.

40:34 Even if young Americans are trapped by Uncle Sam, they may not pay him as much.

40:38 To be comfortable in a city like San Francisco,

40:40 where the median house price is almost $1.3 million, according to Zillow,

40:44 experts estimate that you need an income

40:47 of around $300,000 to live a comfortable middle-class lifestyle,

40:50 if it could be called that.

40:52 To sustainably fund that level of income in retirement,

40:55 you would need invested assets of around

40:57 $8 million outside your primary residence.

40:59 The federal tax and FICA on that income for a single filer is $87,000 combined.

41:04 But people live in San Francisco because they can earn that much in the area.

41:09 But more people in these high-end jobs are willing to take a pay

41:13 cut to work remotely in cheaper American cities or a cheaper country.

41:16 Google cut some of its workers pay by 25%.

41:19 and it some of its workers were happy to accept it

41:23 because they could work from somewhere that was four times cheaper.

41:27 The federal tax in FICA on a salary of $225,000 is only $59,000,

41:34 which means after state taxes,

41:35 this remote worker would only be really taking home $35,000 less every year.

41:40 But the tax system misses out on about the same amount.

41:43 But when even these workers at the very top end of the labor

41:46 market can't earn enough with their work to catch up to other people,

41:49 you can't really blame them for giving up on the American dream.

41:52 But all of this might just be part of a natural

41:56 cycle that has been happening for hundreds of years.

41:58 Just a century ago, automotive jobs were

42:01 replacing horserong cart repairs and making saddler.

42:04 This time it's the AI takeover,

42:07 which seems to be doomed to wreck the economy whether it takes our jobs or not.

42:11 Nobody knows what the future of AI really looks like.

42:14 But no matter which way it goes,

42:16 it does seem like we have put ourselves in a position where if AI fails,

42:20 the entire economy collapses with it and we lose our jobs.

42:23 But if AI succeeds, it will only be because it has taken all of our jobs.

42:28 Whether we like it or not, our immediate economic future is riding

42:31 on the success or failure of this technology.

42:33 Just the top companies are on track to spend

42:36 $400 billion on data center buildouts this year alone.

42:39 And the entire stock market has clearly been buoied by investor hype

42:43 around what this technology could do as some undetermined point in the future.

42:48 Now, that has done two things in the short term.

42:51 Trillions of dollars worth of data centers may or may

42:53 not turn out to be a spectacular waste of money, but at least for now,

42:58 they are providing tens of thousands of high-paying jobs to engineers,

43:02 tradesmen, and technicians all across the country.

43:04 The same goes for the stock market.

43:06 These impressive gains may or may not be backed by sustainable fundamentals,

43:10 but at least for now,

43:11 people who have seen their portfolios double in value over the last 3

43:15 years are feeling pretty good about treating

43:17 themselves to a bit of conspicuous consumption,

43:19 helping to keep the rest of the economy afloat.

43:22 Now, I know the problem of our entire economy being kept alive by unsustainable

43:26 capital expenditure and questionable financial gains is

43:29 not exactly shocking news to anybody anymore.

43:32 In fact, if you're watching this video,

43:34 there's a good chance your entire subscription feed

43:36 hasn't shut up about the AI bubble all year.

43:39 And in our defense, if this bubble pops,

43:41 it will probably take the rest of the already shaky economy down with it.

43:45 This also makes the fact that people are treating

43:47 it like a foregone conclusion all the more dangerous.

43:50 But perhaps we have all been missing the more important question,

43:53 which is, what does a good outcome actually look like at this point?

43:57 Is there any way that we could still quietly back out of this unscathed?

44:01 So, to really hedge our bets,

44:03 we need to look at the three ways this technology could pan out

44:06 and what each of them would do to the economy that regular people live in.

44:10 The uh optimistic outcome,

44:12 where artificial intelligence becomes exponentially more capable

44:15 and comprehensively substitutes human workers in almost every profession.

44:19 The pessimistic outcome where technology plateaus

44:22 and it becomes clear that trillions

44:24 of dollars worth of data centers were a huge waste of resources.

44:27 and perhaps the scariest outcome of all

44:29 which is a scenario where this technology

44:31 finds some useful applications but overall just continues to be a bit meh.

44:36 So the optimistic outcome is what most of the big

44:39 AI companies and personalities are pitching to the world.

44:42 That is with the exception of Peter Teal.

44:44 I am not really sure what he wants.

44:46 You would prefer the human race to endure, right?

44:49 Uh you're hesitating.

44:50 Anyway, the idea of this scenario is that AI models

44:54 and the tools they enable get so good that it renders most human

44:59 work obsolete and whatever human work is left becomes thousands of times

45:03 more productive thanks to tools that do the non-creative work for us.

45:06 Skilled trades are done by highly capable humanoid robots.

45:09 Logistics is fully automated and even health

45:12 and elderly services leverage mechanical muscles and mechanical minds

45:15 to care for an aging population with a smaller

45:18 group of actual doctors watching over everything.

45:21 Eventually, the only jobs left will be those that need human creativity,

45:25 assuming we can't automate that, too.

45:27 If you have always wanted to design your own video game,

45:29 you won't need a full development team.

45:31 You could just vibe code your way through production with AI tools,

45:34 creating something that used to take thousands of real man-hour.

45:37 Yes, I know a lot of you actual developers

45:39 or skilled artisans are rolling your eyes right now.

45:42 But remember, this is the dream scenario the AI companies are selling.

45:46 And to play devil's advocate, it's kind of already happening.

45:49 Even if you completely ignore the current focus on generative AI and robotics,

45:53 there are hundreds of technologies that have already done the same thing.

45:56 To use the example of making your own game again,

45:59 there are modern development platforms and tools that have made it far

46:02 easier for a single person to put together a pretty good game,

46:05 even working out of their bedroom.

46:06 The same thing has happened across almost every industry in our economy.

46:10 It's the reason why our labor productivity

46:12 gets better and better almost every year,

46:14 meaning for every hour that we work, we are producing more value.

46:18 The optimistic view of new AI technology is that it will accelerate

46:21 this trend so much that just a few hours of human labor,

46:24 mostly to oversee the work of the machines, will produce enough value to give us

46:29 a lifestyle we couldn't even dream of today.

46:31 So yeah, even if we lose our 9 toive jobs,

46:33 it won't really matter because there will be

46:35 so much stuff getting made that only a minuscule

46:38 amount of hours will need to be traded

46:40 in return for everything you could ever need.

46:42 In fact, for a lot of people, it could be so minimal that it's not really

46:45 worth having any kind of formal employment at all.

46:48 Everybody from Sam Alman to Jerome Powell has

46:50 said the same thing about AI improving productivity,

46:53 although admittedly with differing degrees of optimism.

46:56 And the thing is, the idea itself isn't inherently wrong.

47:00 But there is a small problem.

47:02 Worker productivity has already increased by a lot for a number of reasons,

47:06 including technology.

47:07 But for at least 50 years, almost none of that increase has

47:10 resulted in higher compensation for regular workers.

47:13 So then why would this time be any different?

47:16 Well, the big AI players actually do have some answers to this obvious question,

47:21 but these talking points need to be considered alongside some logical

47:25 ironies that would almost be funny if they weren't so important.

47:28 So, the widening productivity compensation gap is

47:30 one of the most hotly debated issues

47:33 in all of economics because everybody has something

47:35 different they would like to blame it on.

47:37 Some people will say that migration has flooded the labor market

47:40 with people who are willing to accept lower wages for the same job.

47:43 Some people point to women entering the workforce,

47:45 which also increased the total supply of workers.

47:47 Some people point to outsourcing high labor

47:50 industries like manufacturing or technologies like computer

47:52 systems that made the same amount of clerical

47:54 work possible with a far smaller team.

47:56 Then of course other people will say it is

47:58 because labor unions were crippled in the early 1980s

48:00 which made it harder for workers to negotiate collectively

48:03 and turned the jobs market into every man for themselves.

48:06 Now the reality is that it was probably a little

48:09 bit of everything because they all effectively did the same thing.

48:12 Businesses got access to a greater supply of labor than they

48:15 demanded and without any negotiating power that pushed labor prices down.

48:19 AI is really just another technology

48:21 that will mean businesses demand fewer employees

48:23 to perform the same operations and something

48:25 that reduces negotiating power as well.

48:27 A report published by the executive outplacement firm Challenger Gray

48:31 in Christmas tracks layoff announcements and categorizes them by type.

48:35 This year outside of federal worker layoffs from Doge,

48:38 the number one reason cited for layoffs was a cost cutting shift towards AI.

48:42 In total, since the firm started tracking this category of layoffs in 2023,

48:46 more than 150,000 job losses have been directly attributed to this technology.

48:50 Now, I know what you're about to say.

48:53 Yes, a lot of companies are just claiming

48:55 that they are doing layoffs because of AI

48:57 when really they just want an investor-friendly

48:59 way of saying that they are cutting costs.

49:02 But that's actually exactly the point.

49:04 Even without the ultra optimistic tools

49:05 that could be made possible by this technology,

49:08 it's already becoming a great negotiating tool against workers

49:11 pushing the gap further apart rather than closing it.

49:14 So this is where we get onto the narrative of living in a world

49:17 of such material abundance that the idea of money becomes completely irrelevant.

49:21 It's a nice idea, but there are a few problems.

49:25 As I was putting this video together,

49:28 a group of researchers from OpenAI very publicly resigned because they said

49:31 that the company's economic studies were

49:33 slowly being pushed into outright AI advocacy.

49:35 If they found something that would present a future of AI in a negative light,

49:39 they would just bury it and broaden the scope

49:41 of their research until the results looked good.

49:43 One of them was quoted saying,

49:45 "The economic research team was veering away from doing real

49:48 research and instead acting like its employer's propaganda arm." Now,

49:51 this is just the word of one man,

49:54 but he probably gave up a pretty big payday to get the message out,

49:57 and it does align with other reports coming out of the organization.

50:01 The technically separate organization, Open Research,

50:03 conducted one of the biggest universal

50:05 basic income experiments ever on lowincome households.

50:08 The results were mixed at best,

50:10 but the headline press releases were overly positive about how

50:14 great an AI powered UBI future will be for everybody.

50:16 Now, maybe it shouldn't be shocking that research coming out of a company

50:20 with a very clear motivation to push mass

50:22 AI adoption would be a little bit biased,

50:24 but the ironies do go deeper than that.

50:27 Remember when OpenAI was a nonprofit,

50:28 and the founders didn't care about making money off it?

50:31 Well, according to reports from Reuters,

50:33 it is now gearing up to go public in a move

50:36 that could net the CEO as much as $10 billion.

50:39 Now, if only he still had any economists left on his team,

50:41 they could tell him that all of that money

50:43 will be meaningless in the coming AI utopia.

50:46 All right, joking aside though,

50:47 it's pretty clear that even if this technology meets

50:50 the expectations of even the most ambitious techno optimists,

50:53 there are very few systems in place to ensure

50:56 that the increased productivity from AI actually benefits regular people.

50:59 It's a lot of techno pseudo economic jargon

51:01 to try and gloss over what you probably already know,

51:04 which is that if the people that own these tools can

51:06 make a lot of money off not needing to pay workers anymore,

51:09 they are going to try their very best to do it.

51:12 But that was the optimistic outcome.

51:13 The most immediate fear that a lot of people have right now is that the hype

51:18 around this technology will die off and bring down the entire economy with it.

51:21 Again, as I was putting this video together,

51:23 the jobs report for November was published after

51:25 October was skipped due to the government shutdown.

51:29 Overall, unemployment rose to 4.6% with an additional 4.1% of people

51:32 in part-time or gig work who would prefer to be working full-time.

51:36 This is the highest it has been since 2021, and it's clearly trending upwards.

51:40 This is also before revisions which have consistently

51:43 been downwards for every report so far this year.

51:46 It's not great, but the numbers have

51:48 been helped a lot by three standout categories.

51:50 The first two were healthcare and social services

51:53 primarily to look after an aging and ailing population.

51:56 The third category was construction,

51:58 specifically specialized non-residential construction or in plain

52:02 English all of those data centers.

52:04 This was something that the BLS explicitly highlighted

52:07 in its March report and has only become more

52:09 relevant as the rate of data center buildouts

52:11 accelerates and other government infrastructure projects are scaled back.

52:14 Now eventually this will be a problem because

52:16 theoretically we are going to slow down on building

52:19 these data centers at some point before we

52:21 turn our entire solar system into a matrioska brain.

52:24 So there's still like a lot of things like I would love to go

52:27 build a Dyson sphere around the solar system and like you know make the world's

52:31 gigantic data center with the entire energy output of the sun but obviously we

52:34 can't do that right now so I have to like wait a couple decades.

52:38 Okay, my mistake.

52:39 Well, at least for the next few decades I guess.

52:42 Anyway, the total employment up and down

52:45 the supply chain for these buildouts is very hard

52:48 to precisely calculate but it is in the hundreds

52:50 of thousands according to most industry estimates.

52:52 A lot of this construction is also taking place in remote rural areas where

52:56 these companies have been able to lobby

52:58 for favorable local tax and regulatory treatments.

53:01 Now, that whole game is a separate problem that I know

53:03 that the old team over at Micro is actually making a video on.

53:06 So, I am not going to steal their thunder

53:08 on exactly how messed up this can all get.

53:10 But the point is, as it relates to employment,

53:13 a lot of on the-site workers doing this construction

53:15 are only in these locations while buildouts are happening.

53:18 That's very stimulating to the local economy for the two

53:21 years it takes to get these facilities online.

53:23 But if it slows down nationwide, it could have broader employment impacts beyond

53:27 just the workers directly in the supply chain.

53:29 Now, in the short term,

53:31 even if this technology never becomes commercially viable,

53:33 it could be written off as tech companies using the piles of cash

53:36 they have accumulated to fund their own jobs program for a couple of years.

53:39 It would be like if the wealthy old man from up the road paid

53:42 you and your friends a million dollars to dig a giant hole in his backyard.

53:46 Would there have been a better way to use those resources?

53:48 probably, but it wouldn't cause any other ongoing problems, right?

53:51 Well, it might actually, and we will get to that.

53:54 But right now, the concern is about the existing problems it is covering up.

53:58 $400 billion in capital expenditure this year

54:01 alone is a pretty big economic stimulus.

54:03 Nationwide, according to data from Bloomberg and Renaissance Macro,

54:06 company spending on AI is now contributing

54:08 more to GDP growth than consumer spending.

54:11 That money is ultimately flowing from the big bank accounts of big

54:14 tech firms and investment funds into the hands of thousands of businesses.

54:18 suppliers and workers.

54:19 In fact, if we just look at the numbers alone,

54:21 then in terms of money being pumped into an otherwise unhealthy economy,

54:24 this is almost exactly the same as the combined stimulus and troubled asset

54:28 relief program spending from 2008 to 2009

54:30 to stabilize the economy after the GFC.

54:33 Now, of course, these payments are not as direct.

54:35 And for now, the good news is that most of this money is still coming

54:39 from cash reserves these companies already had

54:41 with borrowing mostly being used for cash flow purposes.

54:43 But it should still give you a sense of scale as to how

54:48 much economic activity is being generated

54:50 on the contingency that AI hype continues.

54:52 If that gets taken away very suddenly,

54:54 it could quickly reveal how shaky everything else was under the surface.

54:58 Then of course, there is the wealth effect

55:00 of people watching the green line go up.

55:02 A lot of retirees and independently wealthy households have seen

55:05 their investment portfolios almost double over just the last 5 years,

55:08 which means that they have been a lot happier to spend conspicuously.

55:12 This spending may be very uneven, but in theory at least,

55:15 someone renovating their vacation home or buying a fifth sports car is

55:18 at least giving money to contractors or a commission to a car salesman.

55:22 A lot of people living off their investments actually have a set

55:24 draw down rate of about 3 to 4% for their everyday spending.

55:27 You might have heard about the 4% rule for early retirement.

55:30 And this rule prescribes that you don't spend more than 4% of the value

55:34 of your invested assets every year so

55:35 that you don't eat into your principal wealth.

55:37 Now, if your portfolio doubles in value over 5 years,

55:40 that means you can do twice as much spending without changing your 4% rule.

55:44 Now, a lot of wealthier households are not this mathematically rigid,

55:48 but the wealth effect happens subconsciously as well.

55:51 My good friend Ben Felix has done a series of great videos on this subject,

55:54 as well as a video he made last week

55:56 analyzing the current risks in our very concentrated investment market.

55:59 So, if you're interested in a detailed breakdown of these ideas,

56:02 I will leave a link to them below.

56:04 If people see the value of their homes double,

56:06 even though it's difficult to actually access those funds,

56:08 they are still going to be more likely

56:10 to get themselves to do something like a big remodel.

56:13 Now, so far, this has actually helped to keep things ticking along.

56:16 But it's also no secret that a lot

56:18 of these companies might be a teensy bit overvalued.

56:21 The only market worth disrupting after burning

56:23 this much capital is the labor market.

56:25 Even a small slice out of the 12 trillion

56:27 worth of annual payroll could recoup these costs pretty quickly.

56:31 But without that, investors are only going to have so much patience.

56:34 Even then, it's not exactly this straightforward.

56:37 One of the biggest ironies in this push to automate jobs is that the tech

56:41 bros are trying to automate jobs that barely make any money in the first place.

56:45 Uber drivers subsidize the wear, tear, and depreciation of their cars,

56:49 and the taxpayer frequently subsidizes warehouse workers with food stamps.

56:52 The financial reality behind taking these kinds

56:55 of jobs with expensive technology is questionable at best.

56:58 And if too many people start asking those questions, that could be a problem.

57:03 If these values are reconsidered in a major way,

57:06 then both infrastructure spending and investment

57:08 fueled household spending would fall simultaneously,

57:11 seriously hurting employment.

57:12 We have always wanted green line to go up.

57:14 But never before has so much real employment depended on it.

57:17 If this technology does turn out to be everything

57:20 investors are hoping for, it's going to take our jobs.

57:23 And if it becomes clear it can't do that, it

57:25 will very likely crash a very frothy and concentrated market.

57:28 and we are going to lose our jobs.

57:30 It sounds pretty bad, right?

57:32 Well, there is actually a third option.

57:34 It's almost become the assumption that this will all end spectacularly,

57:38 but there isn't actually any guarantee of that.

57:40 For now, the companies involved have more than

57:43 enough cash between them to cover outside debt.

57:45 And even if less liquid players like OpenAI can't

57:47 meet the record- setting spending obligations with companies like Oracle,

57:50 the recourse to actually collect on those payments isn't very strong.

57:53 Nobody wants to sue the next person along from them in the financial circle.

57:57 I'm so happy that my lawyers have something to do.

58:01 I'm so happy that I get to sue how

58:04 money works and show them how the legal system works.

58:08 Well, almost nobody, I suppose.

58:10 Anyway, to keep their own market stable, the most likely thing to happen is

58:15 that these companies just take equity in exchange for compute

58:18 time or quietly renegotiate commitments behind the scenes

58:20 and just stretch them out over longer periods of time.

58:23 So even if advancements continue to slow down,

58:25 this could plot along for a lot longer than you might expect.

58:29 But in the long term,

58:30 this kind of scenario could actually be an equally damaging outcome.

58:33 Consistent investment into AI above anything else is going to starve

58:36 other hopeful technologies of getting the funding they need for development.

58:39 The joke about putting AI in the name of the company to get investment is true,

58:43 but a lot of companies do it because

58:45 they need that investment to develop their product.

58:47 An anecdotal example I saw while putting

58:49 this video together was the startup Boom Supersonic.

58:52 It has been raising money for the past

58:54 decade to develop a modern supersonic passenger jet aircraft.

58:57 Now maybe you think faster air travel is a worthy technology to pursue.

59:01 Maybe you don't.

59:02 But that doesn't really matter.

59:03 The point is that this month they came out

59:06 with a new product which was basically taking one of their jet

59:08 engines and attaching it to a generator which they were

59:11 pitching as a new and innovative way to power data centers.

59:14 Now, this of course is just one example,

59:16 but startups trying to develop new technologies are all being forced

59:19 to play some version of the same game to keep funding going.

59:22 On a larger scale, there has been a big push towards restoring manufacturing.

59:26 This may very well be a noble goal with strategic value.

59:29 But it's also made much harder by rising energy costs and electrical

59:32 grids that need to support factories as well as data centers.

59:35 Right now, the data centers can just afford to pay more,

59:38 which means factories and regular households

59:40 have to suffer the financial consequences.

59:43 The same kind of financial crowding out

59:45 is happening in a lot of markets already.

59:47 The reason you are going to need to sell a kidney to afford 2 gigs

59:50 of RAM is because the entire production base

59:52 is being redirected towards serving this one industry.

59:55 Going allin on one hand may or may not pay off,

59:58 but it also means we don't have any chips left

1:00:00 to take better bets if and when they come along.

1:00:03 But go and watch this extended cut video next

1:00:05 to see why we can't trust economic data anymore.

1:00:08 And don't forget to like and subscribe to keep on learning how money works.